High govt borrowings not to impact pvt sector: Pranab

High govt borrowings not to impact pvt sector: Pranab
The Financial Express, July 13, 2009, Page 1 & 13

Indronil Roychowdhury

Finance minister Pranab Mukherjee on Sunday assured the private sector that the government borrowing programme will not crowd out resources for them. The finance ministry plans to borrow Rs 3,97,957 crore during 2009-10 to meet government expenditure as it expects tax resources to decline by 2% this year. This is 52% more than the Rs 2,61,972 crore it raised as net domestic market loan in 2008-09.

“Borrowers will not have to pay higher interest rate for their loan and the private sector will not be crowded out for the government borrowing,” the minister said, after simultaneously inaugurating a nationwide network of 154 State Bank of India branches and 2,151 ATMs of the bank, from his constituency, Jangipur.

Meanwhile, RBI deputy governor Usha Thorat on Sunday said, “The general easing of monetary conditions have also ensured that the additional borrowing needs of the government do not result in crowding out of credit to the private sector”. She said to manage the heavy government borrowing programme better, “the distribution method for the primary issuances was also shifted to uniform price auction in view of the uncertain market conditions. Offers of shorter term bonds and benchmark securities have also helped meet investor preference and stabilise yields”.

Mukherjee had made similar points after meeting the board of RBI on Saturday, led by governor D Subbarao, deputy governors Shyamala Gopinath, Usha Thorat and KC Chakrabarty. Finance secretary Ashok Chawla, expenditure secretary Sushma Nath, revenue secretary PV Bhide and chief economic advisor Arvind Virmani were also present at the meeting.

In a tight credit market, more the government borrows, lesser is the space left for the private sector. This could also push up interest rates. Yield on the most-traded 5-year government bond closed at 6.43% against 6.37% on Friday. The bond market was closed on Saturday.

Mukherjee said the government is working in close cooperation with the central bank. “There is no inherent contradiction that we are pursuing or following with RBI in reference to the annual monetary and the fiscal policies. We are working in close cooperation. We have done it during the worst period of the present crisis,” he said.

On interest rates, he said RBI has taken various steps and will take measures required by the situation. “The Reserve Bank has taken various steps throughout the crisis period. As and when the situation requires, appropriate action will be taken. But what action and at what time, I cannot tell you now,” the minister said.